Dalio: Trump May Ignite "Capital War" Overseas Funds are Re-evaluating Dollar Assets

Ray Dalio, founder of Bridgewater Associates in the United States, issued a new warning, stating that against the backdrop of increasing anxiety and economic tension, foreign governments and investors are reassessing their willingness to allocate assets to the United States. Speaking at the annual World Economic Forum in Davos, Switzerland, Dalio said that as President Trump takes a more aggressive political stance, global financial conflicts may enter a new phase. "The other side of trade deficits and trade wars is capital and capital wars. If you look at these conflicts, you cannot ignore the possibility of a capital war. In other words, people's willingness to buy US debt and other assets may not be as strong as before." Dalio is concerned that if trust is damaged, countries holding large amounts of dollars and US debt may no longer be willing to continue financing US fiscal deficits. Meanwhile, the US continues to issue a large amount of debt, and any wavering of confidence from either side could lead to a dangerous situation. "We all know that those who hold dollars, as well as the United States, which constantly needs to issue dollars and debt, are actually worried about each other. If other countries hold a large amount of dollar assets but lack mutual trust, and we are producing a large amount of dollars, this will become a major problem." On Tuesday, US Treasury prices fell sharply. Investors were concerned once again as Washington threatened to impose tariffs, leading to a potential trade war between the US and Europe. Funds began to withdraw from US assets, and gold and silver, two major precious metals, hit new highs. Over the weekend, Trump announced on social media that starting February 1, a 10% tariff would be imposed on imports from Denmark, Norway, Sweden, France, Germany, the UK, the Netherlands, and Finland. Trump also claimed that the tariff rate would increase to 25% starting June 1, until an agreement is reached with the countries to "fully and completely purchase Greenland." In response, Dalio pointed out that similar situations have occurred many times in history: economic conflicts often escalate from trade frictions to games involving capital flows and currencies. "When international geopolitical conflicts occur, even allies are unwilling to bear each other's debt and tend to turn to 'hard currency'. This is logical and has been repeatedly proven throughout world history." Dalio emphasized once again the importance of diversifying investments, stating that investors should not overly rely on a single asset class or a single country. He particularly highlighted the key hedge value of gold in times of financial turmoil, recommending allocating 5%-15% of gold in portfolios. "When other assets perform poorly, gold often performs well. It is a very effective diversification tool." This article was reprinted from "Finance Association" and edited by GMTEight: Liu Jiayin.